Coming To Terms With Retail Planning

Retail planning is a hot topic throughout the industry right now. The burning issue that brings this core capability front-and-center is that demand comes from more than one place: from the stores, the call center, and from the digital space. Matching that demand to supply in a way that is satisfying to consumers is more difficult, as consumers demand more and more cross-channel fulfillment options. The final kick in the shins of the traditional planning cycle is that consumers are more selective and less loyal, and have easy access to information about competitive offers available anytime and anywhere. That means that retailers must react more quickly to shifts in demand than they have had to in the past.

Even though the whole question of how to plan in the new age of consumers’ anytime/anywhere shopping behaviors is hot, that doesn’t mean that concerns about retail planning are altogether new. In fact, RSR’s annual merchandising benchmark has identified for years that unintegrated planning (disconnected financial, product assortment, forecast & allocation, and supply chain) is a major operational challenge. In our surveys, we typically ask retailers to identify the top 3 challenges they are faced with. In the last three years’ merchandising benchmark studies, retailers have said that “Fractured planning processes make us less efficient.” And what’s important about that is that the number of retailers that make that complaint is growing, not shrinking — meaning that in spite of the attention that the subject is being given over the last several years, that attention is not translating into solutions.

There’s another issue: not only are planning processes struggling to deal with the fact that where demand comes from and how and where it is best fulfilled is much more complicated than in the good ol’ days, the time-to-reaction is speeding up. At RSR, we talk about “making decisions at the speed of the customer”. Consumer demand can shift suddenly for all sorts of reasons beyond the control of any retailer, and retailers must respond very quickly. Retail has always been a reactive business, but now the space between something changing in the marketplace and retailers reacting to it needs to be almost instantaneous. Going forward, the whole planning process should be more of a continuous cycle of reiterative planning-observing-reacting, rather than a linear process with a specific beginning and end date.

Coming To Terms

Finally, there’s the issue of putting the customer at the heart of merchandise planning. That’s another en vogue concept, and the truth behind it is that retailers must find ways to inform the merchandise planning process with insights about customer preferences before the assortment is built, and not only afterwards at the point when retailers are forecasting demand and determining allocations. Many technology companies are addressing this by offering the ability to analyze non-transactional data that consumers leave behind in their digital activities (search, social, reviews read, website dwell times, email offers opened, etc.). What the analyses all have in common is that they focus on behavioral attributes to help retailers glean insights into what demand is likely to be and where it is likely to come from.

The focus is changing, from product-per-location focused planning, to product-per-customer-per-channel focused planning. What merchants have done from time immemorial is develop a merchandise plan that focuses on share of market, rather than share of wallet. But continuing to think that way misses the bigger opportunity to understand consumer preferences and likely demand as an input into the planning process. Doing so could result in improved new product success rates, higher sales, and improved inventory utilization.

TXT Retail’s Thinking Retail London Conference

These were the issues being discussed by merchants in London last week at the Thinking Retail Conference, hosted by TXT Retail. Although it’s generally hard to pull merchants out of their shops for a day to listen to speakers and share stories, about 150 practitioners attended the event at the Savoy in the heart of the city.

Peter Charness, TXT Retail’s Global CMO and the day’s host, asked for a show of hands from the audience to the question (I paraphrase), “how many of you are using ‘big data’ gathered from the Internet as input to your merchandise planning process?” In the full room, only three people raised their hands. So, even allowing for a certain amount of shyness about raising one’s hand at a conference (let’s assume that 10X that many retailers actually are using customer path-to-purchase data to glean insight), that’s a pretty small sampling! Depending on how you look at it, the result of Peter’s impromptu poll is either depressing, or representative of a big green-field opportunity for ‘big data’ analytics solution providers. What I saw in it is that the retail industry collectively has a lot of work to do to figure out how to change in this consumer-centric market.

One company that is doing something is Pimkie International, a French fast fashion retailer with a presence in 28 countries. Dorothée Braure, the Chief Marketing Officer for Pimkie described how the company is using predictive customer analytics from First Insight as part of the Pimkie Lab program. The objective of the project was to increase the number of VIP’s (loyal customer who might be described as brand advocates), while reducing the number of SKUs by at least 25%.

The project demonstrates fast fashion in action. Consumer panels are conducted with First Insight to test consumer reactions to proposed new products (a panel typically seeks about 250 responses). Those responses are analyzed, and product selections are made within 72 hours of the feedback. At this point the traditional planning processes are invoked, and within 4 weeks, those products are in the store. The results are impressive. Pimkie has achieved higher sales in the participating stores. Products that were tested though the Pimkie Lab program have enjoyed more sales/item than products that weren’t tested.

More impressive to me was the fact that the retailer had taken the step to put customer insight in the front of the planning process. The insight data it used was not gathered by scanning the web for signals dropped unwittingly by anonymous consumers who were looking for the best solutions to their lifestyle needs, but by structuring a fun digital dialogue that yielded focused demand insights and built excitement around the brand.

That’s one of many potential ways to learn customer demand insights, to enable retailers to flip the planning process on its head. After all, while retail planning is still one of the most important core functions in the business, merchants must now listen to the voice of the customer at the start, not at the end.